Free Unions Are Assets to Mining Industry

Q: What opportunities has the López Obrador administration brought to the Mexican mining industry?

A: In relation to the extractive industries, the current investment climate in Mexico is not perceived to be the most welcoming. New investors considering whether to invest in a mining project with assets in Mexico are still in a wait-and-see mode regarding the administration’s direction. The government has to make a clear policy statement concerning the short, medium and long-term perspectives for the mining industry. Concerns about taxes, access to land, new mining concessions and security must be addressed.

Another important issue that has not been addressed is labor. It remains to be seen what position unions will hold in the power configuration taking shape in Mexico. This has always been a sensitive point for the industry — the Mexican Revolution was in part triggered by a mining labor conflict. In this sense, the USMCA will strengthen Mexico’s commitment to free unionization. This is something Mexico had already pledged to undertake. But now, Mexico has subscribed to a legal commitment to guarantee the freedom of workers to join the union of their preference. This is an improvement. It is up to the government and industry leaders to make sure that this results in a more competitive industry for Mexico. Historically, Mexican unions have been associated with political parties, which are not necessarily in accordance with the best interests of union affiliates. At present, there is an opportunity for unions to stop being political instruments and truly represent labor interests for the benefit of the industry as a whole.

Q: What is your near-term outlook for M&A activity in Mexico’s mining sector?

A: Response times in today’s industry need to be quicker than ever. M&As allow senior mining companies to ramp up production quickly while keeping costs under control. We expect our clients to increasingly come to us looking for advice on M&A deals.

From the buyer’s perspective, there are four main due diligence factors for a mining M&A. First, make sure that the seller’s mining concession is completely in order and up to date. Second, assessing the strength of the project’s access to land — whether they have bought it or are leasing it from an ejido or community. Third, labor: that all collective contracts and agreements with unions are reasonable and in order. Lastly, that environmental and other regulatory permits and licenses are in order.

From the seller’s perspective, the company must be organized so that there are as few exceptions as possible. The seller has to identify all potential issues that may influence the deal, as well as estimate costs that may be used to negotiate the price. Also, it is important to determine a spectrum of risk solutions, so as to be protected against hurdles that can lead to purchase price disputes.

Q: During the first year of the government, there have been few new concessions. If this situation holds, what strategies can mining companies take?

A: If the government actually sticks to the policy of no new concessions, then the opportunity lies in concessions that have been granted but are not being exploited. The task would be to identify such concessions and solve the problems that are keeping them from being developed, which may be of an economic, social or environmental nature. Over the years, our firm has helped solve many different problems that have hindered projects. For example, extreme proximity to communities and to archaeological sites and ongoing labor conflicts. Every project has its own mix of challenges and opportunities, and we customize each strategy accordingly. For example, we were involved in the Dolores mine project, where the community was located right above the mineral deposit. An agreement was made, and the community was successfully resettled in order to develop the mine. The government should work with companies to pinpoint the least problematic halted concessions and develop a plan to activate them. Actually, the federal government has been involved in solving some of the pipeline issues that exist around the country, but its efforts should be more decisive.

In any case, current concession-holders need not worry about their concessions being arbitrarily revoked. Authorities have already said this is not a possibility. But beyond any particular declaration that government officials make, revoking concessions arbitrarily is unconstitutional. If it has already been judged that exploiting the deposit will not cause labor, environmental or water problems within the community, then concession-holders only need to be concerned with bringing their projects to fruition. This framework is precisely what protects investments.